Does Credit Line Increase Request Affect Credit Score?

Every time you hold a credit card for some time you may wish to ask for an increase in the credit limit as you change your financial status. But still, some people are concerned about the possible effect that applying for an increase in the limit would have on their score. Thus, does it have any negative impact on the credit score when one applies for a higher credit card limit?

The short answer is that applying for credit does not necessarily harm your credit scores. If you are using the credit card properly and are paying your bills on time, requesting an increase in your credit limit will not affect your score negatively. Here is a closer look at how credit limit increase requests are processed and the impact on your credit.

Hard Inquiries and Credit Scores

The moment you apply for any kind of line of credit, the credit reporting agency, as well as your score, is pulled to facilitate the decision-making process that the lender makes to either approve or deny your application as well as the interest rate to offer to you. This leads to what is known as a ‘hard pull’ or a ‘hard inquiry’ on your credit report. Hard inquiries can cost you about five points since you are now deemed slightly riskier after applying for credit.

However, the effect of hard inquiries is not very severe and lasts only for a short time. In most cases, the score impact of hard inquiries lasts for only twelve months; it could be even less. So long as you have not recently applied for credit and, at most, have only one or two new credit applications, your scores should not suffer much.

However, in the present time, applying for several new credits at once may indicate higher risk, thereby lowering the credit scores. However, applying for a credit card to raise the credit limit of a particular card is also considered as one credit inquiry only. However, as long as you’re not applying for lots of new credit accounts in the process or during the month it is not going to be too bad at all if you had one inquiry.

The Effects of Higher Limits on Credit Use

New inquiries do not have a credit score effect and the higher limit could be beneficial or detrimental based on your usage of the card. The biggest factor is it enables you to use more or less of your total revolving credit limits.

The credit utilization ratio is the overall percentage of the credit limits that you are currently utilizing. It is advisable to keep this figure below 30%, according to experts. For instance, you may have a $1,000 limit and always keep about $500 on your credit card. That’s 50 percent of the credit limit – that’s relatively high. If you raise your limit to $2,000 but spend $500 monthly, your utilization will now be at 25% which is much better.

A reduced credit card utilization rate has a highly positive effect on the credit score. It is often more effective to rectify bad credit by reducing the utilization ratio than by paying off credit balances. And if you manage more available credit responsibly, the benefit from lower utilization could far outweigh a small ding for the hard inquiry.

Risks to Consider

While applying for more credit alone shouldn’t hurt your scores much directly, there are some risks to consider before requesting credit line increases.

• More available credit could lead to overspending. You should only apply for the amount that you reasonably expect to spend monthly. Do not quote a higher price just because the insurance limit is high.
• A higher limit can reduce the utilization ratio, whereas reaching the maximum limit can badly affect the score. However, one should remember not to overuse it.
• If banks consider you risky after running your credit report once more, they will either reject the request or lower your credit limits. Submitting too many applications for more credit limits can be perceived as a sign of greed.

Be wise – but a solitary phone call asking for a reasonable increase to your limit should not negatively impact your credit score on its own. On the contrary, using a credit card with a maxed-out limit and then reducing its utilization rate could be beneficial for your credit! The only thing you need to make sure is that it will be easier for you to manage more available credit.

Effects of the Closure of Credit Cards

The last thing that might be useful to know is that closing credit cards on your own or having the banks close the accounts you have can also impact your credit. Closing accounts reduces your total revolving credit limits available. That may be offset by balances on other cards, which will increase your overall credit utilization rate.

For instance, if you have a $2,000 limit card you close. For example, if you owe $800 on other cards and have $2,000 of total limits among these cards, your utilization will increase from 40% to 80% – very undesirable for credit repair.

The bottom line? Close credit accounts after opening new ones or getting higher limits elsewhere as little as possible. The second type of credit use that is best for your scores is to keep your old credit lines active and healthy whenever you can.

For the increases, only apply for those that you are likely to need, learn how to manage the new credit limits responsibly, and avoid closing the older accounts. Thus, when you require more credit, it should not be detrimental to your credit rating in the future. Just use your head and do not overdo it, and one shouldn’t have lasting side effects when the limits are increased.

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